THE ART AND SCIENCE OF BUYING SHORT SALES

Still trying to learn all I can about short sales and loan modifications.  Tuesday I attended a seminar by Short Sale Partners who are offering new technology to speed up the short sale process and make it easier for all parties involved to know what’s going on at all stages of the transaction.  I’m guardedly optimistic.  Right now, it’s nearly impossible to know who is doing what or when it’s being done.  This is frustrating for the seller, but can really handicap an interested buyer.

So, what do you do when properties available for purchase are almost exclusively foreclosures or short sales?  Write multiple offers for a buyer?  Many agents are doing just that.  However, a buyer must disclose this on the offer, and write a separate good faith deposit check for each one.  Telling the seller that you’re putting other offers out when your intention is to only purchase one, doesn’t make your offer the most attractive in a competitive situation.  If you don’t write multiple offers, then your buyer gets squeezed by options such as “Do we withdraw this one to make an offer on that one?”  It’s kind of like too many invitations to the prom and wanting to go with the one you have the crush on but not wanting to miss out on the prom and not feeling desperate and …. well you get the idea.

Writing an offer on a foreclosure is much more straight-forward.  You’re dealing with a bank who now owns real estate they don’t want on their books and they must dispose of the property quickly.  It’s all about the numbers and the bottom line.  Responses tend to be faster.  You are dealing with the REO (real estate owned) department.  When you have the signed contract, you’re not going to have to wonder if someone with a better offer is going to step in front and take the deal away.  You can take it to the bank (pun intended) and the title company.

Writing an offer on a short sale is much more risky.   .   You’re now dealing with the loss mitigation department.  They have to decide whether their note holders are better off  renegotiating or modifying the existing loan (homeowner stays in the home and doesn’t sell),letting the homeowner sell “short” (below what is owed), or taking the homeowner through the process of foreclosure.  In most cases, note holders would be better to cut their losses by approving a short sale, rather than taking the property back in foreclosure.  However, the process for making this determination moves at a snail’s pace and involves many more decisions and multiple parties (not the kind that are fun with hats and balloons.) 

In a short sale, the bank doesn’t own the property. It’s still in the homeowner’s name and they may or may not be making payments on their mortgage (call it a note), utilities, property taxes, etc.  The property may be encumbered by more than one note—a first and a second.  The note may have been sold to multiple investors in a packaged deal, or may reside with the original lender, or many other variations in between.  It’s very complicated, and adds to the difficulty of successfully purchasing a short sale.  The property is assigned an asset manager.  When in the process this occurs may vary, and the manager may change in the middle of your deal.  A good question to ask early on is “Who is the asset manager?” 

I’ve taken numerous classes about short sales and read everything I can to stay abreast of them.  I’ve closed some and lost some.  I keep learning, especially from fellow realtors who are also out there in the trenches.  It appears there may be some predictability factors for successful short sales.  Number one, easiest to close, are those with a single mortgage that was the original purchase money from a sub-prime lender.    Those loans weren’t bundled and sold as A-paper loans.  Least likely to close—properties with two loans, each from a different lender, where the homeowner has taken their equity out to use for something other than home improvement (they paid off credit cards, bought a car, bought a boat—basically used their home’s equity as a bank account.)  

If you are considering the purchase of a short sale, make sure you find out all you can about the nature of the liens and loans on the property, whether the homeowner has submitted a complete package with a hardship letter, how far along they are in their conversations with the loss mitigation department, whether an asset manager has been assigned, whether a company specializing in short sales such as Short Sale Partners is involved, and then buckle your seatbelt for a bumpy, hair-raising ride. 

Remember, you may get a signed contract from the homeowner, but until the bank sends you a signed agreement, there is no agreement.  You must have written consent from all existing secured lenders and lienholders to really have a deal.  Unless otherwise agreed to in writing, the homeowner can continue to market the property and take better offers to the asset manager.  You need to be the last one standing when all the gunfire has ceased.  You’ll have to be very patient and remain completely unattached to the results.  Kind of like the “Zen-Master of Housebuying”. Make you want to run out a purchase a short sale?  If you do, give me a call or visit my website at www.DeLongTeam.com.  Good luck and happy hunting.

 

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